Unlike other trading strategies, performances of Value strategy and performances of growth strategy have received considerable attention from the proponents of the standard asset pricing theory. The paper attempts to excavate the reason for such attention is given to the two strategies. The excavation reveals that the reason revolves around the concept of rational investors which is the antecedent of informational efficient market that in turns is an assumption in the theory of asset pricing that is pertinent for the model of Capital asset pricing model (CAPM) developed based on the theory to be a valid model for measuring normal return on portfolios or on individual shares. If any of the two strategies manage to deliver abnormal return or return higher than return gained from adhering to passive investment strategy, then the ability is used by the proponents of theory of Behavioral Finance as evidence that share investors are irrational that refutes the concept of rationality aforementioned. Indirectly, the refutation would mean the CAPM should fall disuse.
|Keywords:||Asset Pricing Theory, Behavioral Finance, Rationality, Overreaction, Underreaction|
Lecturer in Finance, School of Business Management, National University of Malaysia, Bangi, Selangor, Malaysia
Lecturer, Department of Finance, University of Malaya, Kuala Lumpur, Wilayah Persekutuan, Malaysia
Lecturer, Institute of Mathematics, Faculty of Sciences, University of Malaya, Kuala Lumpur, Wilayah Persekutuan, Malaysia